After gaining independence in 1991 Estonia set itself on a course towards a market economy taking the first modest steps towards privatization of state-owned companies and establishing the framework for return to its rightful owners of land confiscated after the Soviet occupation of 1940.
Negotiations with Britain resulted in return to Estonia of gold deposits in the Bank of England at the time of the Soviet takeover, establishing an economic base for Estonia's abandonment of the ruble and adoption of its own currency, the kroon, tied to the German D-mark.
These steps were accompanied by increased Finnish investment in Estonia, growing trade in the Baltic basin, and economic assistance to Estonia from the European Community and Finland.
The transition from the Soviet command economy to a free market, however, was painful and slow.
By the end of 1992 Estonia experienced falling industrial production and high inflation.
By 1994 Estonia was unambiguously pro-market but purchasing power was down, the price of imports was up and privatization of agriculture was slow.
With strict banking regulation, a sound currency, continued privatization and foreign investment, reserves to back up the kroon quadrupled from 1992 to January 1994.
By late 1994 despite increased inflation and a decline in exports, Estonia was described in glowing terms: "A pluralistic democracy, a market economy, liberalized trade, 60% of enterprises privatized, GDP grown, unemployment (1.8%) much lower than western Europe, no budget deficit, public debt 5% of GDP "Wonderful!"
